Untold words have been written and uttered about the rise and fall of countless companies and industries, including such once seemingly rock-solid organizations as General Motors and AIG and the enterprises of banking and home building. Pari-mutuel wagering on horse racing is on the list.

Jim Collins is a former instructor at the Stanford Business School and the bestselling author of books on corporate leadership. He is no armchair theorist, as his work is firmly grounded in extensive empirical research. The books he is best known for are the influential mega-sellers Good to Great and Built to Last. His current book (2009) is titled Howthe Mighty Fail (subtitle: And Why Some Companies Never Give In).

Collins and his research associates found that great companies in decline typically, although not always, follow a predictable path through five stages:

Stage 1: Hubris Born of Success. Leaders of highly successful organizations are susceptible to becoming complacent and therefore lapsing into not working as hard as they once did to keep their edge. Upper management may believe that their success is well deserved and understandable given their savvy and superior abilities. In their view, luck or good fortune has nothing to do with it. Undaunted by potential or nascent competition, leaders come to think that their organization is largely impervious to change and that its prominence will go on in perpetuity.

Certainly, racetrack executives in the heyday of pari-mutuel wagering, when it was insulated by law from competition, acted this way. Racing’s quasi-monopoly position in the United States masked a multitude of problems with how tracks were operated. This was the era when racetracks earned their deserved reputations for notoriously poor customer focus.

Stage 2: Undisciplined Pursuit of More. Emboldened by its successes, top management goes on a growth binge and, in the process, puts a strain on the cash, fixed assets, and human resources needed to execute. The organizational system becomes increasingly bureaucratic. Upper management is fixated on short-term growth and increased scale of operations, often by going on an acquisition binge, and sometimes in businesses in which they have little or no expertise. Frustrated employees depart and the deficit in human resources begins to show up in results.

Magna Entertainment Corporation exhibited most of these characteristics after its founding in the 1990s, although it was never a great company or even a good one. The company acquired one racetrack after another, so there was not enough time and resources to assimilate the racetracks it purchased, and Magna churned management talent at an alarming rate, so there was no continuity in leadership. The company looked into expansion into shopping developments and a theme park.

Rather than fixing the racing problem, racetracks have tended to pursue greener pastures in alternate gaming and forays into non-racing retailing. For instance, The Meadows near Pittsburgh has a bowling alley. These new areas of commerce may be beneficial to a racetrack, but the risk is that management will neglect its traditional core product, which is pari-mutuel wagering.

Stage 3: Denial of Risk and Peril. Herein the executives in charge seem oblivious to the dangers facing the organization. They isolate themselves from what is happening and tend to entertain good news while discounting the threats from the bad news, which, by now, is coming fast and furious. External factors are blamed for the organization’s hard times, and sometimes rightly so. Management attempts to recapture the organization’s vibrancy by making “big bets” into ventures and product lines that will supposedly right the organizational ship.

Racing in some states are indeed imperiled by external factors largely beyond their control but lamenting it will not solve the problem. In Kentucky, Churchill Downs is competing against slots and table games at a casino just across the Ohio River in Indiana. Management is acutely aware of the threat and is working diligently, if so far unsuccessfully, to overcome it. By contrast, Magna Entertainment Corporation was making optimistic statements about its future long after it became clear to most knowledgeable individuals that the company was about to go bankrupt.

Stage 4: Grasping for Salvation. By this time, management is in a panic mode. The organization is apt to look for a charismatic leader to return things to the good old days. The savior will have a grand vision that will bring the organization back.

The new leader comes in and makes a lot of noise about installing a new culture of innovation. He or she restructures the organization and then, when that does not improve things, does it again. Finances are rationalized. Objectives and goals are changed out frequently. One master strategy is abandoned and replaced with another, so on ad infinitum. Inconsistency becomes the only consistency and the corporate culture is one of confusion and distrust.

It is often asserted that racing needs a czar to rule the sport. Presumably, he or she will mandate that diverse interests cooperate and thereby partly at least restore the halcyon days when racing was the preeminent legal means to wager? This kind of talk is a sure sign of desperation and is impractical besides because of the diffusion of authority over racetracks across state lines.

In practice, the truth about successful turnaround executives is that they tend to be introspective people rather than the sterotype of charismatic personalities. They pay close attention to reality and go about their job in a thoughtful and workmanlike manner. The image of the blustery Lee Iaccoca at bankrupt Chrysler in the early 1980s is the exception and not the rule.

When Louis Gerstner Jr. was named chairman of IBM, he was the first outsider ever to head the company. IBM had fallen on desperate times because personal computers were taking away much of the business of IBM’s golden goose, the mainframe computer, or “big iron.”

Early on in his tenure, the cerebral and reflective Gerstner took a lot of criticism when he answered a reporter’s question about his vision for IBM by saying that the last thing that IBM needed was a vision. I recall visiting IBM’s Armonk, New York headquarters in 1995 and hearing , from one of Gerstner’s immediate assistants, an explanation of this seemingly inexplicable comment. Gerstner recognized that his first job was to staunch the bleeding at IBM and to surround himself with top-rate talent. Together they would labor to turn IBM around, which they did, as opposed to Gerstner articulating some lofty vision and then having everyone else implement it. The turnaround would not come about because of a bold stroke of vision, but rather, through assessing a massive amount of quantitative information about IBM’s markets and competitors, and subsequently evolving IBM toward the empirically-documented most promising paths. Anne Mulcachy, a Xerox lifer, followed a similar process when she and her colleagues resurrected Xerox from stage 4.

Stage 5: Capitulation to Irrelevance or Death. The organization plummets into extinction or hangs on as a former shadow of itself.

Collins points out that none of these stages are necessarily fatal. Declines can be reversed, even in stage 5, and organizations can be resurrected.

Collins writes: “The main message of our work remains: we are not imprisoned by our circumstances, our setbacks, our history, our mistakes, or even staggering defeats along the way. We are freed by our choices.” His research shows that great nations, great companies, and great individuals can decline and recover. In fact, this trait—the ability to comeback from defeats—is the mark of the “truly great.”

Collins advises: “Never give in. Be willing to change tactics, but never give up your core purpose. Be willing to kill failed business ideas, even to shutter operations you’ve been in for a long time… Be willing to evolve into an entirely different portfolio of activities, even to the point of zero overlap with what you do today…create your own future,” as have a host of well-known companies.

So far, the predominant strategy employed by top executives of racetracks has been to morph their organizations from being exclusively racetracks into racinos and simulcasting facilities. In my view, this has been the correct course of action because all racetracks can no longer survive with one product, on-track pari-mutuel wagering on horse racing. Additionally, the judgment here is that remote wagering still has significant growth potential through the implementation of Betfair-like offerings.

The takeaway from Collins’ research is for racetracks to attract the very best executive teams they can, people with a “never give up” attitude, who can quietly work together to create their organization’s future. One place to begin is the inclusion on boards of directors of insightful people who will take their appointment as a challenge instead of a resume enhancer with a few perks thrown in. Beware of people who claim to have a bold new vision for racing. The fact is, in most cases of success, the restoration of a once-strong enterprise comes incrementally rather than through some momentous flash of creative insight by a leader, and without a wholesale abandonment of what made the organization successful in the first place.

Governor Ted Strickland of Ohio, a Democrat, was steadfastly opposed to expanded gambling in the Buckeye state as recently as June 2009. Since his election in 2006, he has promised to veto any bill that the legislature might send him permitting racetrack slots. In addition, he campaigned against a 2008 ballot initiative that would have installed a casino in Clinton County. The Ohio Senate, with the Republicans in the majority, has also opposed alternative gaming, while the Ohio House has supported racetrack slots since the Democrats gained control in 2008. The Ohio State Racing Commission, whose members are all Strickland appointees, have strongly supported racetrack slots.

With a huge budget deficit and a looming cut in state services, Strickland had a 180 degree change of mind if not of heart. In a compromise agreement with Senate Republicans to break a budget deadlock, the legislature crafted language enabling the governor to permit Ohio’s seven racetracks to each install 2,500 video lottery terminals. The operation is to be under the auspices of the Ohio Lottery Commission.

This rapid turn of events has created flux and questions and the fallout is likely to greatly affect the fate of racing entities in Ohio and states surrounding it. The many “what ifs” and “what will they do” would perplex a soothsayer in predicting how things will eventually shake out. Here are the major contingencies.

1. The governor and the legislature are about to be challenged in court, mainly on the basis that any expansion of gambling must be sanctioned by Ohio voters in a statewide referendum. A nonprofit named the Ohio Roundtable and a couple of church groups have already promised as much. Ironically, the United Methodist Church is a leader in the anti-slots movement and Governor Strickland is an ordained Methodist minister. The Ohio Supreme Court may quickly dismiss legal objections or the justices might agree with the plaintiffs. Even if the constitutional authority of the governor and the legislature is ultimately upheld, the case could drag on. Moreover, there is the possibility that the antigambling forces will sponsor and win a statewide vote repealing the work of the governor and legislature. In that event, racetracks would have to give up slots and take a heavy loss in the process owing to the machines that were purchased and the facilities that were remodeled or built from scratch to accommodate slots.

2. A casino initiative is planned for Ohio for the November 2009 ballot. It would allow for a total of four casinos–in Cincinnati, Cleveland, Columbus, and Toledo–and 20,000 slot machines. A key player is Dan Gilbert, who is the founder of Michigan-based Quicken Loans and the majority owner of the Cleveland Cavaliers NBA franchise. Should the casino referendum be approved, then the quasi-geographical monopoly on slots enjoyed by the racetracks would disappear. Six of Ohio’s seven racetracks are located in the metropolitan areas of Cincinnati, Cleveland, Columbus, and Toledo and the other track, Lebanon Raceway, is considering a move to near Dayton. The racetracks would still have a lucrative franchise, just not as valuable.

3. Prior to the slots authorization by the governor and the legislature, Penn National Gaming (owner of Raceway Park harness track in Toledo and an Indiana casino near Cincinnati) was reported to be in favor of the November casino initiative. Now, with its harness track in line for slots, Penn National Gaming’s top management has a decision to make regarding supporting or not supporting the November ballot initiative. (Penn National Gaming hugely funded the campaign to defeat the 2008 ballot referendum on the casino in Clinton County because it would have competed against its Indiana casino.) Interestingly, Penn National Gaming did not join with management of the other six Ohio racetracks when they recently wrote to Governor Strickland to embrace his slots plan. If Penn National Gaming assists in funding a winning marketing campaign for passage of the casino ballot initiative and then does not secure the casino license for Toledo, it will have seeded competition for its own racetrack.

4. MTR Gaming Group owns Mountaineer Casino Racetrack and Resort in Chester, West Virginia, Presque Isle Downs and Casino in Erie, Pennsylvania, and Scioto Downs (harness track) in the Columbus, Ohio, area. MTR Gaming Group is no doubt opposed to the proposed November Ohio casino ballot issue. On the other hand, the slots authorization is a two-edged sword. Scioto Downs will gain slots but MTR Gaming Group’s West Virginia and Pennsylvania properties will be damaged financially by slots at Cleveland’s Thistledown (Thoroughbreds) and Northfield Park (Standardbreds). MTR Gaming Group’s racinos in Chester and Erie are very dependent on Ohio customers. Whether stock market investors see slots in Ohio as a net gain or a net loss for MTR Gaming Group looks to be the former. On July 10, 2009, the day when Governor Strickland and the legislature came to an agreement on slots, MTR Gaming’s stock opened at $2.35 per share and closed at $3.48 per share for a 48% gain.

5. River Downs in Cincinnati could be a big winner and Kentucky’s racing industry a big loser. River Downs is only 14.7 miles away from Kentucky’s Turfway Park, across the Ohio River, 90 miles from Keeneland, and 107 miles from Churchill Downs. A racino at River Downs might be the death knell for Turfway Park (thanks to the gift from the Kentucky Senate in keeping slots out of Kentucky) as racing and slots customers in the Cincinnati metroplex, including Northern Kentucky, gravitate to the River Downs racino. At the moment it is uncertain how much Ohio purses will be augmented by slots. If the horsemen are treated well and purses increase dramatically, then convenient River Downs will likely be a favored place for Kentucky stables to race. Incredibly, a down-on-its-luck River Downs reinvigorated by slots could detract significantly from the quality of summer racing at Churchill Downs. Think about the lure to sports and racing fans from Louisville and Lexington of a day at River Downs followed by a Cincinnati Reds game at night.

6. Thistledown near Cleveland is soon to be auctioned off by the bankrupt Magna Entertainment Corporation. Suddenly, with the prospect of slots, Thistledown’s market value has escalated. Thistledown is likely to recover from the verge of extinction to become a healthy going concern once it is able to compete on more even terms with racinos at Mountaineer Casino Racetrack and Resort (which has both slots and table games) and Presque Isle Downs and Casino. However, a buyer has to value Thistledown not knowing whether a new casino is coming to Cleveland, depending on how the November ballot comes out.

7. The Cleveland-area racetracks–Northfield Park and Thistledown–are within seven miles of one another and the Columbus-area racetracks–Beulah Park and Scioto downs–are nine miles apart. This proximity should assure a battle royal. If Ohio voters in November 2009 approve casinos for Cleveland and Columbus, the competition will escalate even more.

8. Assuming that the slots installations are not slowed by legal challenges, how soon the racetracks can get them up and running remains to be seen. The governor’s goal is to have them functioning by at least May 2010 so that the state can apply its slots revenues to the budget, which would be much quicker than other states (e.g., Pennsylvania) were able to do so. One of the racetracks is planning on temporarily housing slots in its grandstand while it builds a state-of-the-art slots/hotel complex adjacent to the track. It ambitiously wants to have slots open to the public by the end of 2009.

How these matters turn out should have a profound effect on horse racing in Ohio and contiguous states. Fortunes will be enhanced and impaired in the process.

• Each racetrack must pay a $100,000 nonrefundable application fee and a $65 million licensing fee. The first payment on the licensing fee is due in mid-September 2009 with four installments thereafter.

• Licenses will be awarded for a 10-year period. A racetrack must agree to make at least $80 million in facility improvements within the first five years of operating slots. The initial year’s investment must be at least $20 million.

• Half of the net revenues generated by the slots will go to the state of Ohio, which is one of the largest percentage cuts in the United States. Part of the state’s revenues will be used to cover operational costs and the remainder will go to school funding. Horsemen’s groups will negotiate directly with racetracks to determine the portion of slots revenues that will go to purses.

Frank Stronach’s persistence in the face of adversity exemplifies what separates the most successful entrepreneurs from the pack. In the wake of the bankruptcy of Magna Entertainment Corporation–when the assets have not yet been disposed of–Mr. Stronach is again playing a high-stakes game. As chairman of Magna International, the Canadian automobile parts manufacturer that he started in a garage, he is poised to buy Opel from General Motors. The WallStreet Journal (“Magna May Snag Opel”) of May 30-31, 2009, says: “Grabbing Opel would give Mr. Stronach a victory to offset a recent defeat. In March, Magna Entertainment filed for bankruptcy protection and now is trying to sell many of its tracks.”

In Magna International’s first attempt to acquire an automobile company, it was the losing bidder to Cereberus Capital Management for Chrysler. That turned out to be a case of being grateful that you did not get what you wished for. Whew!

The tentative agreement would give Magna a 20 percent position in Opel. Sherbank, the largest Russian state-controlled bank, would have 35 percent. General Motors would retain 35 percent and Opel employees would get 10 percent. The German government would provide (ostensibly) short-term financing of the euro equivalent of over $2 billion.

If Magna were to get Opel, the future would be fraught with risk. Anytime a company engages in vertical integration it increases its vulnerabilities. A good example, among many, is when PepsiCo got into the restaurant business by purchasing Taco Bell, Kentucky Fried Chicken, and Pizza Hut. The theory behind the acquisitions was that the thousands of franchisees and company-owned outlets would be locked into using Pepsi soft drinks. Trouble was, the deal put Pepsi in competition with its own customers, such as Wendy’s. The late Dave Thomas, Wendy’s founder, was irate and kicked Pepsi out of his restaurants and replaced them with Coke. Eventually, Pepsi divested itself of the restaurants, which are known today as Yum Brands, the world’s largest restaurant company and, coincidentally, sponsor of the Kentucky Derby.

Magna would be following the same treacherous path because its Opel brand would be competing with car companies that buy parts from Magna International. Some of them may be offended and/or may not want to share plans for future car models with a parts manufacturer that happens to own Opel.

The Wall Street Journal opines that Magna faces the challenge of having the “marketing savvy” to compete in the retail automobile market. Does this sound familiar? The same concern was there when Mr. Stronach got into the retail horse-racing business.

Mr. Stronach could rest on his reputation and wealth from a long and distinguished business career. But like most other high-rolling entrepreneurs, he won’t, or can’t. Think about the audacity of the Opel venture. A Toronto business tycoon in his seventies is the chairman of an auto parts manufacturer that is reeling from the depression in the North American car business. He recently was forced to take another business, Magna Entertainment, into bankruptcy. Now, instead of waiting out the storm, he is partnering with a Russian bank, far from Toronto geographically and culturally, to buy an automobile brand from a company, General Motors, that is on the verge of collapse and is a ward of the U. S. taxpayer.

I have spent my adult life around entrepreneurs who take the risks that keep the economy going and provide jobs for everyone else. Mr. Stronach is as bold of an entrepreneur as they come and I admire him for it.

Although I have doubts about some aspects of the strategy behind his Opel venture, he has a reasonable shot of succeeding. His background in automobile parts manufacturing provides him with far more expertise in running a retail business pertaining to horsepower of the mechanical genre than it did a retail business centered on equine horsepower.